Busted

Anna Blackshaw’s interview with economist Dean Baker [“Busted,” February 2010] offered a typically leftist perspective that greedy lenders, market deregulation, and hapless consumers were to blame for the housing bubble and subsequent economic crisis.

I’d like to know which former regulations Baker thinks should still be in play. Is it the prohibition that prevented banks from operating across state lines, which was repealed in 1994? Nationwide banks have been a huge boon to consumers and are far better able to balance risks, which has helped keep the situation from spinning even more out of control. Maybe Baker is referring to the 1999 Gramm-Leach-Bliley Act, which repealed part of the Glass-Steagall Act that prevented banks from engaging in securities business? President Bill Clinton, who signed the repeal into law, recently said, “I don’t see that signing that bill had anything to do with the current crisis.” Or was it credit-default swaps, deregulated in 2000? Many policymakers, former Clinton Treasury Secretary Robert Rubin among them, argued that regulating them would have done more harm than good.

What’s most astounding is Baker’s failure to mention Fannie Mae and Freddie Mac, arguably the biggest contributing factors to the meltdown. These two government-sponsored entities were riddled with accounting and corruption scandals and were gobbling up subprime mortgages at an alarming rate, bringing bonuses to their executives and huge risks to the taxpayers, who were backing those loans. Adding to this was the Community Reinvestment Act, which strong-armed banks into making loans to anyone regardless of credit history, all in the name of social justice. Attempts to address this were rebuffed by Democrats in Congress, our current president included, with Representative Barney Frank saying, “I want to roll the dice a little bit more in this situation towards subsidized housing.”

This blatant social engineering completely distorted the housing market. Yet our lawmakers have decided to extend even further the amount of debt Fannie and Freddie are allowed to incur, while calling for still more low-income housing loans. We are doomed to repeat the past.